Cuban State Companies in Times of “Temporary” Crisis

By Vicente Morin Aguado

HAVANA TIMES – “Cuba’s economic system works like a medieval economy right bang in the 21st century”, states the renowned Cuban economist Emilio Morales in an interview with Havana Times. “They are heading towards disaster in any of the possible scenarios, the system just doesn’t work,” he insists.

HT: President Diaz-Canel has repeated that “Socialist state-led companies are the vital link and most important agent in Cuba’s economic system.” Is this economic entity damned? Why isn’t it efficient?

EM: Company development is based on a concept of State monopoly capitalism. Every state-run retail chain sells the same products for the same price. Publicity is limited to the store or sales point only, as a result, communication channels with customers are very limited. Whether they sell more or less products, Cuban workers will receive the same salary, which is an incentive for them to steal from warehouses and adulterate prices, retail commerce drives the black market. So, their own work force becomes a threat and risk to the company itself.

HT: Chains of default and inter-company debts are a chronic evil in Cuba’s business system, which the Cuban parliament has discussed at length without coming up with an effective solution. How can we explain this unequivocal display of economic inefficiency?

EM: The State holds the financial resources that sales at these retails chain generate, which means that a lot of the time, this capital isn’t reinvested in the company’s own commercial operations, but the State can use these funds for other purposes instead.

HT: What are the consequences of this?

EM: This non-availability of their own resources means that payments to retail suppliers are delayed, which can hurt suppliers’ trust and stop supplies coming in. Lots of times, it leads to unjustified shortages at stores, a lack of liquidity, and growing dissatisfaction among customers, who then turn to the black market to cover their needs.

HT: In your long experience at the head of entities such as CIMEX corporation, Cuba’s largest company, Tecnoazucar, Habanos S.A., Servimed and Cubacel, among others, is there an example that stands out in your mind of the State’s inappropriate intervention in these companies?

EM: It happened when Fidel Castro decided to distribute Chinese TVs across the entire country. I remember they left TECNOAZUCAR without a single cent. Their hard-currency accounts were frozen so they could pay for these Chinese TVs. The company couldn’t then pay bottle and label suppliers, which were needed to package Mulata and Bucanero rum, as well as Santero-brand aguardiente. This situation went on for about three years.

In the end, nobody wanted ATEC Panda TVs, almost 1 million devices ended up in schools, hospitals and workplaces because there weren’t selling in their stores. The CIMEX Corporation suffered severe losses in TV sales, because the dictator froze imports of other brands, forcing them to buy this bit of Chinese junk. Six months later, he had to unfreeze these imports because sales on the dollarized retail market had come to an absolute standstill.

HT: A similar landscape hasn’t changed, yet, the new government appointed by Raul Castro, recently decreed pay rises in the public sector and set obligatory prices on food. Is this series of decisions sustainable?

EM: More pronounced internal productive incapacity, given the inefficiency of state companies, governed by a centralized economy and completely distorted by laws that regulate supply and demand, create an economic system that is completely incompatible with the international economy. these two irrational measures will speed up the breakout of a large-scale inflationary crisis in the country.

HT: Can you explain that to us a little bit more please?

EM: In fact, dollars will be more widely used as a form of payment, as it’s the currency that travelers use, introducing goods that are bought outside the country, and it’s the currency that Cubans feel more financially secure with in their pockets. Both measures will lead to an excess of Cuban pesos in circulation (CUP). This will increase the exchange rate against the dollar on the black market, and prices will shoot up on this market.

HT: How will it affect independent workers, who exceed half a million and have become the country’s most productive sector?

EM:  Price limits have already begun their destructive snowball effect. Pork producers, as well as owners of private cafes and taxis have had to abandon their businesses because expenses exceeded their sales. This is the magic effect that has already begun to make the irrational and destructive nature of the unpopular and absurd measure. They’re giving Cuba’s self-employed a coup de grace.

HT: Tomorrow we will continue with the interview including topics on foreign investment, money circulation and then the sugar industry.  As we pause Morales refers to president Diaz-Canel’s pretension of presenting the country’s economic crisis as a “temporary situation.”

EM: They’re betting more on adopting a war economy (with 60 years of training), than for change that implies freeing productive forces, opening the doors of progress and foreign investment.

Vicente Morin Aguado: [email protected]